Xbox One and PS4: Holiday Heroes?

I am often asked about my thoughts and predictions for the upcoming releases of Microsoft’s Xbox One and Sony’s PS4. In order to wrap my head around what I think these new consoles will sell, I took an approach at what the consoles need to sell in order for software and hardware sales to be on par with last year, and therefore anything above that would yield growth in the all-important fourth quarter of the year.

Here are the results:
- The Hardware Gap: By looking at a combination of year-to-date trends, fourth quarter trends, and analyst intuition, I estimated that there would be a $645 million shortfall in hardware sales over the fourth quarter of 2013.

-Closing the gap: What this leaves us with is a need for the new consoles with the Xbox One priced at $499 and the PS4 priced at $399 to sell at least 10% more units than their predecessors, the Xbox 360 and PS3, did in their holiday launches in 2005 and 2006, respectively.

-The Software Gap: For video game software, whose sales are currently down 1.2% year-to-date, my expectations are that the shortfall will not be as harsh due to a solid lineup, not to mention a game like Grand Theft Auto V, which drove the 52% growth in video game software sales in September. Therefore, the shortfall from current platform sales would be $328MM.

-Closing the Gap: If attach rates to these new consoles are consistent with their predecessors, and unit sales are at least 10% higher than the previous launches of the Xbox 360 and PS4, software sales would actually be slightly up over Q4’12.

Is this possible? Has the demand for console gaming grown by 10% over the last 7 to 8 years?

Personally, I think the answer is…Yes!

Think about it in terms of generations: younger kids are now teenagers, teenagers are now in college, and recent college grads now have more discretionary income from beginning their careers (hopefully). These consumers have been integral to the success of console gaming, but let’s not forget the new group of youngsters also clamoring for the latest hardware.

If the hardware piece is possible, then software will follow, as I believe attach rates are likely to hold from the prior launch.

All in all, if my assumptions are correct, then this growth will be enough to offset year-to-date trends and deliver a solid holiday performance and possibly turn 2013 into a growth year for the games industry!